The Karachi Tax Bar Association (KTBA) has presented a tax proposal aimed at providing relief to charitable and non-profit organizations engaged in charitable activities.
The proposal addresses the burden of sales tax on purchases made by these organizations, as the current Sales Tax Act, 1990 does not have specific provisions for their exemption or zero rating. The KTBA suggests amendments to the Act to ensure that non-profit organizations are spared from the burden of sales tax, allowing them to allocate their resources towards their welfare activities.
Zero Rating for Non-Profit Organizations:
The KTBA highlights that while the Income Tax Ordinance, 2001 explicitly defines charitable and non-profit organizations, the Sales Tax Act, 1990 does not provide any concept of such organizations. Presently, exemptions or zero rating are granted only to specific charitable hospitals, diplomats, and privileged persons. This situation compels non-profit organizations to bear the burden of sales tax, which restricts their welfare budget and activities. To address this issue, the KTBA proposes the inclusion of non-profit organizations in the Fifth Schedule of the Sales Tax Act, 1990 to allow for zero rating on their supplies.
Reversal of Output Tax on Bad Debts:
The current Sales Tax Act, 1990 requires registered persons to charge, levy, and pay sales tax on an accrual basis, regardless of whether they recover the sales tax amount from customers at a later stage. This results in registered persons bearing the burden of sales tax on bad debts, which increases the cost of doing business. The KTBA suggests amending the Act to allow for the reversal of output tax in cases of actual bad debts or write-offs. This amendment aligns with global practices in tax jurisdictions where specific guidelines for tax reversals on bad debts exist.
Amendment in Rules for Goods Destruction:
To streamline business activities and reduce unnecessary compliance requirements, the KTBA proposes amending the rules regarding the destruction of goods. The proposal suggests including all goods that become unfit for consumption due to obsolescence, expiration, short shelf life, or other reasons. It also recommends replacing the mandatory approval of the Commissioner for goods destruction with an intimation to the Commissioner from the taxpayer. The Commissioner would have the discretion to delegate an officer to observe the destruction of goods if desired. These amendments aim to facilitate taxpayers, save time, and prevent unnecessary litigations.
The tax proposal put forward by the Karachi Tax Bar Association addresses the concerns of non-profit organizations regarding sales tax on their purchases. By advocating for zero rating on supplies to non-profit organizations, reversal of output tax on bad debts, and amendments in rules for goods destruction, the KTBA aims to support the charitable activities of these organizations and streamline tax compliance processes. Implementing these proposals will promote a more favorable environment for non-profit organizations and encourage their continued contribution to society.